There are multiple areas in the Department of Justice’s Evaluation of Corporate Compliance Programs which intersect with the area of continuous improvement. In addition to Prong 9. Continuous Improvement, Periodic Testing and Review; under Prong 1 Analysis and Remediation of Underlying Misconduct is found the following: Prior Indications – Were there prior opportunities to detect the misconduct in question, such as audit reports identifying relevant control failures or allegations, complaints, or investigations involving similar issues? What is the company’s analysis of why such opportunities were missed? This also ties to the 2012 FCPA Guidance made clear that compliance audits, with actionable remediation plans, are a key component of any effective compliance program. Another way to do achieve these multiple and intersecting goals is through voluntary monitoring. when I recently visited with Vincent DiCianni, President and Founder of Affiliated Monitors, Inc. and Eric Feldman, Senior Vice President (SVP) and Managing Director, Corporate Ethics and Compliance Programs also at Affiliated Monitors, Inc. about their views on voluntary monitoring.
According Feldman, voluntary monitoring is an approach where a company “uses the services of an independent monitor to find out how their program is working and to be able to use that data with government regulators and law enforcement to demonstrate their due diligence in creating and continuously improving their corporate ethics and compliance program.” There are at least two different types of voluntary monitoring. Feldman articulated the first as “reactive proactivity” which is the situation where a company determines it has a potential compliance violation and they bring in an independent monitor to address the issue.
The genesis for this type of monitoring is some event, such as a whistleblower report, internal report or investigation or detect control picking up information which warrants additional investigation. Feldman provided a couple of examples. The first might be “where one business unit has a problem and they're worried about the other business units and they want to get an assessment.” Another situation could be there is a problem in a sector or “industry and they know that that industry is being scrutinized by law enforcement or the regulators and they fully expect the regulators or law enforcement to be coming in and looking at them.” Yet another area could be in a geographic area such as China or another high-risk region.
DiCianni noted there is a second type of voluntary monitorship. It is where a company wants a true independent “to come in to test the quality of the program to see how impactful” the company’s compliance program is operating. It could assess a variety of issues, such as the compliance internal controls to test their benchmarking of a company’s compliance program. In this type of voluntary monitorship, the examiner is not focusing on one issue or region as laid out in the first example but it is broader.
Moreover, it allows a true independent to perform the assessment as DiCianni noted, “it's very difficult for companies and for compliance officers and their teams to self-assess the strength of their programs. They just have difficulty doing that. It’s just not an easy thing for them to get their hands on, how good a job am I doing? By having an independent come in with no skin in the game, with complete objectivity, neutrality, no judgements, or pre-judging the work, looking at the company’s program, the quality of the program, the makeup of the team, the organizational structure, where it’s placed. All of those kinds of things are parts of this voluntary approach.”
The benefits of both types of voluntary monitoring are multifold. It certainly helps to meet the Control Testing requirement found in the Evaluation. The 2012 FCPA Guidance stated, “An organization should take the time to review and test its controls, and it should think critically about its potential weaknesses and risk areas.” This type of approach can provide benefits if a company finds itself in FCPA hot water, as both the DOJ and Securities Exchange Commission (SEC) “will give meaningful credit to thoughtful efforts to create a sustainable compliance program if a problem is later discovered. Similarly, undertaking proactive evaluations before a problem strikes can lower the applicable penalty range under the U.S. Sentencing Guidelines.” Yet the Guidance intones a business reason for the use of such techniques as voluntary monitoring when it stated, “Although the nature and the frequency of proactive evaluations may vary depending on the size and complexity of an organization, the idea behind such efforts is the same: continuous improvement and sustainability.”
Feldman pointed out yet another reason for such a proactive approach. It can create an administrative record, which a company can use to demonstrate it has remedied the problems. Equally important it establishes the company is maintaining its commitment to doing business in compliance. The key is the independence of the monitoring personnel so they can present an accurate, unbiased opinion.
He presented the example of a company which had been debarred by the US government and needed to demonstrate an acceptable level of compliance to get off the debar list. He and his team performed a baseline assessment and from there developed a remediation plan, which the company implemented. After six months or so, he and his team came back to assess the progress made by the company. From this follow-up assessment, they generated a report which was used in a submission to the government which essentially noted, “We are now ready to be a responsible contractor as defined by the federal acquisition regulations and we propose an administrative agreement with continued monitored that would move it from voluntary monitoring over to mandatory monitoring for the next three years.”
Voluntary monitoring is an excellent technique through which a company can engage in continuous improvement. Nonetheless it has many other benefits as well, including regulatory and evidence in a criminal investigation if needed under anti-corruption laws such as the FCPA. The bottom line is that all those scenarios might justify a company to engage a voluntary monitorship to come in and do a complete ethics and compliance and cultural assessment or audit of their organization.
Three Key Takeaways
For more information on how an independent monitor can help improve your company’s ethics and compliance program, visit this month’s sponsor Affiliated Monitors at www.affiliatedmonitors.com.